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he has held out from the producer of the product. Is there any provision in the bill that will take care of that?

Mr. STEALEY. As I stated to you, I am only prepared to discuss very intelligently the details as they refer to cotton. Our thought is that these receipts, if issued at all on cotton, would be issued to the producers at the first processing point. All cotton comes to the gin, which is the first processing point, and the receipt would be issued at that time to the producer, and the producer himself would actually own that receipt and thereby become a stockholder in this equalization fund, and any settlement which might be made would be made back to him.

The CHAIRMAN. Now that would work all right if the man who did the ginning was the man who produced the cotton. But suppose the man who did the ginning has bought the cotton. When he bought it he took out this fee. He deducted it. He took out the fee that he had to pay into the equalization fund.

Mr. STEALEY. Yes.

The CHAIRMAN. He lost nothing by the operation. It was not his money. If you pay him back part of that fund in the way of a participating receipt it does not do the producer any good.

Mr. STEALEY. This would eliminate, in a considerable measure, the buying of cotton, I think, in the seed, which has become less and less the practice in the South. Formerly a great deal of our cotton was sold in the seed. Now a comparatively small percentage of it is sold in the seed. The stabilization effect on the market would provide for that period.

The CHAIRMAN. I can see how, if the cotton were ginned by cooperative organizations, that would be all right, because every producer would own part of it.

Mr. STEALEY. The bill provides that this shall be done under regulations to be worked out by the board, and provides sufficient time to give the board opportunity to work out the practical details.

The CHAIRMAN. I do not see how you could work it out to give the producers the benefit of these participating receipts, because the miller who mills wheat would buy the wheat, and when he bought it he would deduct the equalization fee that he has to pay.

Mr. STEALEY. That is probably so, Senator, and it is probable that under present conditions the participating receipt would not be issued on wheat. The bill does not require it.

The CHAIRMAN. My understanding of this proposed legislation was that it was going to do this: If when they got through with the year, they had some money left, it would go over for the next year. As a matter of fact, they always would have some money left, because if they did have a loss in a way, they would make up the loss, and they would make this deduction of this fee that is going to be collected by the miller large enough so that it would assure them that there would be a little money left every year. My understanding was that that was to go into this revolving fund, and there would be so much in there for the next year.

Mr. STEALEY. Senator, under the spirit of this bill we are not providing for a yearly operating period, but for a continuous program. Under, I think, some of the other tentative bills that you have had before you there has been the idea of probably a yearly or an occasional, as conditions might demand, operation period, and that each

one would stand by itself.

The theory of this proposed legislation is that the operation of the board will be continuous, and that the assessment of the fee may be made at the time in view of the facts, and that it may be lowered or raised, as conditions indicate; and the purpose of this legislation is not to take care of a temporary emergency for the year, but gradually create a fund in that equalization fund sufficient that the fund will own the stock in trade or the supply between the producer and the consumer, from which the sales will be made to take care of the demand between the production period of one year and the production period of another year, so as to cover the spread between the years and to cover, in a practical manner, the spread in price.

At the present moment, for the last several months we have been selling 1926 cotton a year before it is produced, and selling it at a price very different from the price to-day, and the theory is here that this equalization fund will accumulate a stock and that from that will be distributed that supply to the demand, and that when that is sufficient to finance the stock of cotton, that then the redistribution will take place, and that the stock will be kept up by the cotton. It will probably take 5 or 10 years to accumulate enough funds from comparatively small assessments to finance that merchandise, but when it is financed so that these farmers, when they quit farming, would be carrying that cost, that the new ones would come in. With the wheat and livestock that would never be practical, but the legislation is framed so that the board itself may determine that as the facts develop; but cotton, when the board is ready to declare that period and to levy the fee there is rather a practical place and rather a practical method of doing that.

Then probably one of the biggest and most practical thoughts in this that we have tried to cover is to make this fee and its ownership automatically a controlling factor in the next year's production and acreage control by simply having every man contribute his part to the carrying of this merchandise, with the knowledge that if he produces more next year than the market can absorb, and keeps on doing that, the cost of carrying this merchandise is going to destroy his profit, destroy his business. So that we feel, so far as cotton is concerned, which is a world product, and on which only a world price can be maintained, it is absolutely essential that we have this principle in there finally, so as to give every farmer control of all the other 2,000,000 farmers, so that every one of them will pay his part to the cost, which will automatically regulate the production within reason. We feel that that is the heart, finally, of a long-time program. Now because there is an emergency, the possibilities of a very much greater emergency by the large crops that may be produced this year, we provide for temporary assistance from the Treasury, which is in line with the declarations that have been made for an export corporation and that kind of thing-temporary assistance in the form of a revolving fund from the Treasury, which may do for three years the things that this equalization fund will do after it is created, and of sufficient size to be a factor in administering the law, and that loans may be made from the revolving fund of the Treasury to the equalization fund of any one of the commodities, and that the board may, with that loan, assist cooperative associations if they determine they are capable, worthy, that they can make trades that 91358-26-pt. 2-2

they deem to be wise and practical with other business agencies for carrying out this program of removing the burden of a temporarily unneeded part of the product from the market, and providing for the final flow of that into the market, the sale of it, and for the absorbing, if there should be any, of costs and expenses in connection with that. Then if, at the end of three years, there line equalization fee is declared with reference to cotton, that accumulated merchandise would be gradually taken over by the contributions of the farmers themselves, and become their stock to be administered by the board, through business organizations, for the permanent stabilization of the market and of the business.

Senator RANSDELL. Do you propose to increase the revolving fund provided for in section 16?

Mr. STEALEY. I think it would be necessary, in view of this fact. This year the cotton situation is uncertain. We have rather a full surplus at the present time. We are planting, undoubtedly, a large acreage this year. There is no way to control it. If everybody could depend on everybody else to cut down the acreage, we would have no trouble about it, we would cut the acreage before to-morrow night, if everybody believed that everybody else would do that. But we do not do that. So we are going to plant all the acreage that can be grown. If we should produce, gentlemen, a reasonable acreage production of cotton this year on acreage that is going to be planted it will mean utter ruin to agriculture, to banking and commerce in the South. I say that in all seriousness, realizing the meaning of what I say, that if a production in line of acreage yield that we have had in the last few years should be the result of the hard work and money that is being expended by the farmers of the South this year, it will mean utter ruin. It will probably mean 4, 5, and 6

cents for cotton.

Senator HEFLIN. You think that this propaganda for decreased acreage is not going to have any effect?

Mr. STEALEY. I fear not.

Senator HEFLIN. And you think the small yield of cotton up in the panhandle last year is not going to result in comparatively small acreage?

Mr. STEALEY. I think they will likely figure that the freeze will be a little later this year. In spite of all that, Senator, cotton has this year paid about as much money as they have gotten out of anything else, and we poor cotton farmers have to do something, and that is all we know how to do.

Senator HEFLIN. But is not that because you had a smaller crop? Mr. STEALEY. Yes, sir.

Senator HEFLIN. The more work they put into it, the more money they spend, the more cotton they produce, the less they get. You think that the propaganda that is now being carried on will not result in a decrease of production?

Mr. STEALEY. I fear that there is nothing else that they could plant in that acreage to which you refer, from which they will hope to get a greater return than they figure they may get from cotton. That particular section to which you refer can produce cotton much more cheaply than any other part of the world. It is virgin soil. There is no grass or weeds to interfere. They do steam-plow cultivation out there, many, many acres to the man.

Senator HEFLIN. In Texas?

Mr. STEALEY. Yes; in that new section.

Senator HEFLIN. They added about 3,000,000 acres last year.
Mr. STEALEY. Yes, sir.

Senator HEFLIN. The added that much to their former acreage, and made about a million and a half bales less than they did before. Mr. STEALEY. Yes; but they lost their cotton, Senator, down in the old Cotton Belt, the bread basket of the cotton section of the South, where they had drought. The reduction in production was farther down in south central Texas. The trouble is not that they did not make cotton up in the section that you are talking about, but that they had the freeze to produce a noncommercial, undesirable cotton. In previous years they have gotten that cotton from smaller acreage, gathered in such a way to make it fairly satisfactory cotton for market. I wish I could tell you that we were going to have a real reduction in acreage, but I can not, for I can not see it.

Senator RANSDELL. Is it in that section, Mr. Stealey, where they have that very highly improved gin, which they claim made a moderately commercial cotton even from that injured cotton you speak of.

Mr. STEALEY. Yes, sir. In Oklahoma we have that same type of gin, and did not suffer from freeze and frost so bad as in the section to which the Senator refers in the south panhandle of Texas.

Senator RANSDELL. Then it is possible, by improved machineryMr. STEALEY. With improved machinery and a skillful operator very good cotton can be put on the market by that large-acreage method of production.

Senator RANSDELL. You did not finish answering my question. You were interrupted. You did not finish answering as to the amount of the revolving fund. You were interrupted by questions. I do not mean to interrupt you, Senator Heflin, but I would like him to finish his answer to that question.

Mr. STEALEY. I think, because of this possibility of an excess, a large excess amount of cotton, that that fund, in order that it might be in position to do what it may be called on to do, had better be at least twice the amount suggested here. This amount, as I understand, was suggested when it was planned that an equalization fee, if needed, would be put on at once, and funds accumulated from that. In the light of the deferred equalization fee, we would want to ask that that be at least $500,000,000 from which the board might administer the equalization program.

Senator RANSDELL. I do not quite clearly understand how the Government would be secured. That may be answered by some other witnesses. Would the Government be pretty well secured for the advances made under this law?

Mr. STEALEY. When the equalization fee operates, advances then that might be made from the revolving fund would be made on a basis of fees that are to come in, and would be only 75 per cent. If the Government decided and the figures showed that we were going to make 15,000,000 bales of cotton and the fee was $2 a bale, then it would be reasonably sure that we were going to get at the end of the season $30,000,000. Under the program for financing the administration, the Government would advance, if needed, three-fourths of that, and would get the interest on that as the fees came in. I think that is well cared for after the equalization fund is a reality. Of

course, for this three-year period, with corn and cotton, the Government would have the security of a stabilized market and a certainty that the commodity would sell on a stabilized market at a better price than it would on an unstabilized market, and the probability is that there would be no loss.

Senator HEFLIN. Do you mean that if you should collect $30,000,000 on 15,000,000 bales of cotton the Government would advance $21,000,000?

Mr. STEALEY. Yes, sir; if needed. That was the provision of the bill.

Senator SACKETT. Suppose there should be a loss for this first three years. Is there any provision for that?

Mr. STEALEY. It would be absorbed by the revolving fund.
Senator SACKETT. And after three years?
Mr. STEALEY. After three years?
the Treasury; by the Government.
three-year period.

No, sir. It would be borne by
There is no other money in this

The CHAIRMAN. That is as far as cotton is concerned.
Mr. STEALEY. So far as cotton is concerned.

Senator RANSDELL. Then there might be a Treasury loss in the operation of your plan for the first three years?

Mr. STEALEY. There might be.

Senator RANSDELL. It is possible.

Mr. STEALEY. There might be a Treasury loss; yes sir; for the first three years, to be borne by the Treasury.

Senator HEFLIN. Do you mean that the Government would advance, during the three years that you say that tax shall not be levied on cotton and corn?

Mr. STEALEY. Yes, sir.

Senator HEFLIN. And that would begin at once?

Mr. STEALEY. That would begin at once if, in the judgment of the board, it was necessary.

Senator HEFLIN. They would advance about $21,000,000 a year on a 15,000,000 bale crop?

Mr. STEALEY. There is nothing in here that says to the board what the equalization fee shall be. The board has latitude to determine the existing and the prospective supply, the demand and the prospective demand, and then to set up a fee that will take care of the financing of the excess supply, present and prospective, over the excess demand, present, and prospective.

Senator RANSDELL. What is your idea as to how much this fee should be?

Mr. STEALEY. It would be an amount, if there was 1,000,000 bales excess cotton, about 60 per cent to 75 per cent of that value could be borrowed in the regular channels or from the intermediate credit banks, and the fee would also provide for the financing of the other 25 per cent or 35 per cent from the equalization fund.

Senator RANSDELL. How much would that be a bale?

Mr. STEALEY. Well, if you had 20-cent cotton it would be about $100 a bale. If you had 1,000,000 bales it would be $100,000,000. If you borrowed 75 per cent of it from the intermediate credit bank, that would be $75,000,000 that we could borrow from the intermediate credit bank, then the equalization fund would have to provide for $25,000,000.

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